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Solutions

We must do something about the debt crisis now because the interest that we pay on the debt is rising. The Congressional Budget Office estimates that unless we do something, the interest will be about $915 billion annually by 2028. This exceeds the military budget.

The solution to our debt crisis is to go back to the recipe from 1946 that we know worked well. We'll need to undo the Congressional favors to the wealthy. Here are a few of the obvious fixes.

Income Tax Rates

Our social inequality is so great that we now have a strata of wealthy Americans who are not paying their fair share. We could use more than one marginal tax rate for them. Here's the existing 2018 Individual Income Tax table showing the rates for Individual filers only - to keep this simple.

Tax RateIncome amounts
10%Up to $9,525
12%$9,526 to $38,700
22%$38,701 to $82,500
24%$82,501 to $157,500
32%$157,501 to $200,000
35%$200,001 to $500,000
37%over $500,000

We need to add additional margins for high-income individuals. Here's an example of how this can be done and reduce the taxes on the working poor as well. The changes to the original table are highlighted in green.

Tax RateIncome amounts
0%Up to $9,525
12%$9,526 to $38,700
22%$38,701 to $82,500
24%$82,501 to $157,500
32%$157,501 to $200,000
35%$200,001 to $500,000
45%$500,000 to $1 million
55%$1 million to $10 million
70%over $10 million

In January 2019, U.S. Representative Alexandria Ocasio-Cortez (D-NY) proposed a 70 percent income tax on income over $10 million. Bernie Sanders also proposes new margins but limits his highest margin to a tax rate of 52 percent on income over $10 million.

Capital Gains Tax Rates

A big reason why the wealthy escape paying their fair share of taxes is that much of their income is considered Capital Gains and taxed at a lower rate than income. The solution is to treat both short-term and long-term capital gains as ordinary income.

In February 2019, billionaire Bill Gates suggested taxing capital gains at the same rate as ordinary income.

Wealth Tax

In January 2019, U.S. Senator Elizabeth Warren (D-MA) proposed an annual wealth tax. This essentially is a tax on net worth. The wealthy have sheltered income over the years that can no longer be taxed with income taxes. A wealth tax is a way to compensate for the resulting massive social inequality.

RateNet worth
0%up to $50 million
2%$50 million to $1 billion
6% *over $1 billion

* Note: Warren originally proposed a 3 percent tax on wealth over $1 billion in January 2019 but changed this to 6 percent in October 2019.

On August 28, 2019, presidential candidate and billionaire Tom Steyer proposed a wealth tax of one-percent on wealth over $32 million.

In September 2019, Bernie Sanders proposed a much more granular progressive wealth tax:

RateNet worth
0%up to $50 million
2%$50 million to $250 million
3%$250 million to $500 million
4%$500 million to $1 billion
5%$1 billion to $2.5 billion
6%$2.5 billion to $5 billion
7%$5 billion to $10 billion
8%over $10 billion

Wealth taxes have been criticized for placing an additional burden on people who say they now need to pay to have their net worth computed. This is nonsense. Anyone of significant means already knows their net worth. Their financial planners have already computed it.

Regressive Taxes

The Republican strategy involves lowering tax rates for income and capital gains and shifting the burden to the poor and middle-class with regressive taxes, such as sales taxes. This is usually done at the state level. It's important that states also tax their high-income taxpayers and lower or eliminate regressive taxation.

Non-profit Institutions

A few hundred billions of dollars of tax revenue are siphoned away by tax-exempt organizations that do not operate in the public interest. These organizations serve the interests of specific groups of people. They are often political and religious. Congress should have the IRS require all current tax-exempt organizations, earning over a certain amount, to reapply for their status, deny those that clearly don't qualify, and collect whatever back taxes are available.

This will require that Congress increases the IRS budget.

Estate Tax

Estate and Gift taxation is a complex topic. It involves both tax rates and exclusion amounts. Suffice it to say that wealthy families have a sweet deal - especially families like the Waltons of Walmart fame.

The Trump tax cuts doubled the estate tax exemption from $5.25 million to $11.18 million and the estate tax rate is the lowest it has ever been.

We need to significantly reduce the exemption amounts and increase the tax rates. Another solution to estate and gift taxation is to use more granular progressive tax rates - perhaps just like income tax.

Update January 31, 2019: U.S. Senator Bernie Sanders (I-VT) proposed a progressive estate tax with a top margin of 77 percent on estates valued over $1 billion. He proposes no estate tax for amounts up to $3.5 million.

RateEstate worth
0%up to $3.5 million
45%$3.5 million
50%$10 million
55%$50 million
77%$1 billion

Wall Street transaction tax

The practice of automated, high-frequency trading in the financial markets puts us all at risk. Many people have advocated for a transaction tax. I agree, though I think the rate should be higher than what's been talked about and tied to the transaction amount.